USD/JPY stays under pressure near near daily lows amid rsisk-off environment

• European stocks extend losses on political turmoil in the UK.
• DXY erases the majority of the bullish opening gap.
• US stocks point to negative opening, reflecting the risk-off environment.

After ending the previous week with small losses, the USD/JPY pair started the day under pressure on Monday and extended its losses as investors continue to stay away from risky assets. At the moment, the pair is trading a few pip above its daily low at 113.26, losing 0.26% on the day.

Despite a lack of fundamental drivers, news of a 7.3 magnitude earthquake in Iraq kept the risk appetite low during the Asian session and the Japanese Nikkei 225 Index closed the day with a loss of more than 1%. Major equity indexes in Europe also started the day on a weak note as market chatter about Conservative members of the UK parlieament getting ready to sign a no-confidence in PM Theresa May forced investors to seek refuge in safer assets. At the momen, the German DAX is down nearly 1% while the UK FTSE is losing 0.3%.

• Nikkei/FX when equity/ bond correlation breaks down – Deutsche Bank

With no major data releases in the remainder of the day, the market sentiment is likely to drive the price action. A sell-off in the US stocks could keep the demand for the traditional safe-haven JPY high and continue to weigh on the pair. On the other hand, the US Dollar Index, which started the day with a bullish gap and roe to 94.55, is now at 94.35, a little above last week's closing level of 94.30. 

Technical outlook

With today's drop, the RSI indicator on the daily graph is testing the 50 mark, suggesting that the bearish momentum is building up. The pair could encounter the first technical support at 112.85 (50-DMA) ahead of 112 (psychological level) and 111.40 (200-DMA). On the upside, resistances align at 113.75 (daily high/20-DMA), 114.30 (Nov. 7 high) and 114.80 (Nov. 6 high).